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Fears Mount Over State Grain Policies

Moscow Time, 09.08.05


Russia is set for another bumper-harvest year, but analysts say government intervention may hurt grain exports.

The new agriculture season has gotten off to a good start, with Russian exports of grain hitting an all-time high for the month of July, reaching around 1 million tons, industry experts said Friday.

But government interventions in the grain market planned later in the summer may hurt foreign trade jeopardizing Russia's position as one of the world's leading exporters of cereal, analysts and traders said.

Russian agricultural producers harvested over 21.8 million tons of grain by late July -- an increase of 21 percent on the same period in 2004, according to the Agriculture Ministry, Bloomberg reported.

As Ukraine's grain suppliers are wrestling with domestic problems and Western Europe is suffering a drought, Russia is particularly well placed to increase its exports. Out of the 78 million tons Russia is forecast to harvest this year, 11 million tons could potentially go abroad, according to the SovEcon agriculture consultancy.

"Russia has a good potential as a grain exporter" but that may change with price interventions because they "have more minuses than pluses," said Mikhail Laptev, a grain trader at agriculture group Razgulyai.

As the bumper harvest is pulling grain prices down, the government plans to spend some 6 billion rubles ($209.8 million) to intervene in the market by setting higher cereal prices, Russian media reported.

However, intervention policies meant to help cereal producers may backfire, hurting them instead, analysts said.

"If the prices are set too high, exports will stall and Russia could lose its competitive edge in the global wheat market" as producers choose to sell their produce to the state rather than foreign buyers, said Dmitry Rylko, general director of the Institute of Agricultural Market Studies.

If Russian grain exports stall for a few months, Ukraine and Kazakhstan would strengthen their hold on the world grain market, he said.

"Judging by the world market conditions, intervention prices should not exceed 2,700 rubles ($94.40) for third-class wheat," said Alexander Korbut, vice president of the Russian Grain Union, a lobby group, Kommersant reported.

The Agriculture Ministry has already decided that it will intervene in the market, setting the price for third-class wheat at 3,300 rubles, the newspaper said.

The Agriculture Ministry declined to comment on Friday.

By Anna Smolchenko
Staff Writer



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